NAFTA negotiators get down to business after tough talk from Trump

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Freight trucks snake from Mexico into California as they are inspected at US Customs, at the Otay Mesa port of entry in San Diego.

MEXICO CITY - After days of threats from US President Donald Trump to scrap the North American Free Trade Agreement, negotiators get down to business Friday at the second round of talks aimed at revamping it.

Having set an ambitious "accelerated" calendar during the first round -- held in Washington from August 16 to 20 -- US, Mexican and Canadian negotiators will now dive into the nitty gritty details at five days of talks in Mexico City.

Trump has dialed up his anti-NAFTA rhetoric in the build-up to the second round, saying Mexico was "being difficult" and that the US would "end up probably terminating" the 23-year-old trade deal he accuses of shipping American jobs south of the border.

However, Trump's power to shock and awe appears to be waning in Mexico, where his tweets were once capable of sending the peso into a tailspin.

"The leverage and power that the US has in the context of NAFTA is perhaps a little bit less than the Trump administration thought it had," said Jean-Francois Perrault, chief economist at Scotiabank.

Mexico dismissed Trump's threat to scrap NAFTA as posturing -- his "peculiar" negotiating style, Foreign Minister Luis Videgaray called it. And the government answered a series of vitriolic Trump tweets with an undaunted statement saying it would not renegotiate the deal over social media.

Most experts now say NAFTA is likely to survive with moderate changes -- though with Trump, nothing is certain, they warn.

"Base case is that all parties will be able to find common ground and small changes to the agreement are unlikely to affect trading relations within the bloc," Neil Shearing, an economist at London-based consulting firm Capital Economics, told AFP.

Trump may ultimately have little room to maneuver.

Some 14 million US jobs depend on trade with Mexico and Canada, according to the US Chamber of Commerce. And the president faces strong pressure from US industry to keep NAFTA in place.

- Plan B -

Mexico's economy is meanwhile chugging along despite Trump's threats, after wobbling in the wake of his election.

It grew an annualized three percent in the second quarter, and the central bank nudged its 2017 growth forecast up Wednesday, to 2 to 2.5 percent.

The bank cited "a reduced probability" of major disruptions in the relationship with the United States.

Still, Trump being Trump, the Mexican government has come up with a Plan B in case the talks fail.

It says it includes diversifying the country's trading partners to reduce dependence on the United States, where Mexico currently sends 80 percent of its exports.

"He could still surprise us. Trump does have the executive authority" to pull out of the deal, said Alejandro Luna, a partner at Mexican business law firm Santamarina & Steta.

He predicted a "difficult" second round of talks.

There are numerous touchy subjects on the table, including US demands to scrap NAFTA's dispute resolution mechanism and change the rules of origin for the auto sector to require a certain percentage of cars' components to be built in the United States in order to remain duty-free.

Trump is also fixated on slashing the United States's $64 billion trade deficit with Mexico -- though economists say it is a structural issue that cannot be changed with trade talks.

Mexico will face pressure to overhaul its labor laws and deliver wage increases to factory workers who make an average $2.30 an hour -- about one-tenth the average factory wage in the US.

The talks next head to Ottawa in late September, then Washington in October.

Negotiators are rushing to reach a deal before the process gets caught up in campaigning for Mexico's July 2018 presidential elections and the November 2018 US midterms.

But few details are expected to emerge: all three sides have agreed to keep the talks secret until they are done, which they hope will be by the end of the year.